How Do I Know Which Life Insurance is Right for Me?
Avoid Becoming Overwhelmed by the Terminology
The search for the right type of life insurance can be an arduous and frustrating task. Each has their unique set of circumstances regarding their health and financial well-being, as well as the needs of their loved ones. Each of us wants the ability to tailor an insurance policy to our individual needs. Often, the more we try to research to construct a policy, the more confusing the process becomes. There are subsets of groupings intertwined with listings of entries adjoined to sub-headers. In such cases of matching a person to a policy, the simpler we keep things, the better:
The Two Types of Life Insurance
- Term Life Insurance– Term Life Insurance is temporary, and has a specific end date. Typically, most term life insurance policies are offered at 10, 20 or 30-year intervals. Term policies are simple, inexpensive, and designed to meet a client’s temporary or short term needs. The most common term policies include a fixed premium through the duration of the policy, as well as a fixed payout. At the end of a term policy, renewal rates are possibly subject to drastic increase. Some providers offer policies that may provide a conversion plan from term to permanent. The main attraction to term life policies is their simplicity and the limited or absent requirement of a health exam. As premiums increase over time, it has become commonplace for customers to seek out the least complicated path in securing some form of life insurance.
- Permanent Life Insurance– Insurance that lasts as long as you live, permanent coverage is best designed to serve a client that has long term needs such as planning an estate or final(burial) expenses. Permanent insurance tends to be more complicated and more expensive. But it can also provide more benefits and peace of mind for you and your loved ones. Another advantage of permanent insurance vs. term is the buildup of cash value. The insurer will charge higher premiums on the front end of a permanent policy, and a portion of that paid sum becomes liquid cash. The client can then choose from a number of methods to utilize that cash value according to the terms of their policy.
What are the Different Kinds of Term Life Insurance?
Term life policies can be broken down into three types:
- Level term insurance– The premium remains at a fixed rate throughout the life of the policy. Death benefits likewise remain the same for the duration of the policy. While a level term policyholder may pay a relatively higher premium in the early years, the fixed rate gradually increases the value of the policy as the years pass. For instance, a younger individual, if they are fortunate enough to stay in good health, might find a level term to be worthwhile. This holds true, particularly if the policy is a renewable(same coverage and duration, albeit at a higher premium) or convertible(from term to permanent) one. Level term is the most common of term life insurance.
- Decreasing term insurance– When an individual’s financial burden lessens over time, such as paying down a loan or mortgage balance, the client might be more inclined to purchase a decreasing term policy, which normally contains a level rate of premium and less death benefit over time. Decreasing term insurance is essentially mortgage coverage and buys time for the client to cover a long-term debt.
- Annual renewable term insurance– As stated, the annual renewable term (ART), can be thought of as a series of one-year contracts. The coverage loses value over time, while the premium is subject to increase upon each 12-month interval that the policy is renewed. The insurer and customer settle on some number of years (1,10,20 etc.) while the premium is not guaranteed beyond a 12-month period.
What are the Different Types of Permanent Life Insurance?
There are four main groups of permanent life insurance:
- Whole Life– The biggest advantage of whole life insurance is the duration of coverage. Assuming the insured meets the premium obligation, which can be pricey, this policy covers an individual throughout their entire life. There are no worries about renewal, and the premiums normally remain level through the end of the policy. As such, premiums are higher, but whole life does add some flexibility. In addition to covering the death benefit, a cash value “savings account” is set aside for the insured to withdraw or borrow upon during the course of the policy. This liquidity does include fees, according to how far into the policy you choose to exercise these options. As opposed to term life, which may not cover a policy holder over the age of 65, a whole life policy can provide peace of mind for an extended period, and if you outlive the life of the policy, you are free to cash out the amount accrued. Whole life also defers tax on cash value growth.
- Universal Life– Like whole life, universal is permanent and contains options for cash value that is tax deferred. But Universal also offers the ability to skip premium payments and adjust death benefits according to an individual’s needs, provided the cash value can cover the expense for that period. Universal, like whole life, is also interest rate dependent, except the rate is calculated monthly, while whole life is adjusted annually. This gives universal holders an edge, during times of rising interest rates, to increase the cash value of the policy.
- Variable Life– This form of permanent insurance gives the client wide-ranging latitude to use their cash value to determine when, where, and how to invest. Variable, therefore, contains a high risk/reward component. The insurer is not obligated to cover losses due to poor investment decisions, and in such cases, the client may be required to forfeit the amount of savings. There are several tax advantages, but only those who are experienced with investment should consider this type of policy.
- Second to Die/Survivorship Life– This is a joint type policy, for example, a married couple, or even a group of family members or business employees, that pays benefits only after the last participating party has passed away. This type of policy poses less risk for the insurer as compared to insuring two or more parties individually. Less risk translates into lower premiums and makes qualification easier. Survivorship policies also serve as a shield for estate tax liability for those who want to bequeath the maximum value of their worth to surviving family.
“I am a female, in my mid 40’s, non-smoker. I am living on a fixed income. I don’t have a lot to contribute toward life insurance, and for the foreseeable future, I see no major change in my health or my income. Is there some type of “hybrid” life insurance policy that allows some amount of longer-term security without paying high premiums associated with traditional permanent coverage?”
The “Third Way”- Guaranteed Universal Life Insurance (GUL):
Note: Guaranteed Universal Life (GUL) is NOT the same thing as Universal Life! It is also NOT the same thing as whole life insurance. GUL is likened to term life in that the client is insured for a finite amount of time, with one big difference. Term life customers agree to a 10, 20, or 30-year duration. GUL customers are insured until they reach a specified age: 90, 95, or 100 years old, for example. GUL behaves similarly to whole life only in the aspect that the policy may cover a client for the rest of their life.
Guaranteed Universal Life premiums are much more favorable than permanent coverage, and the death benefit is guaranteed for the entirety of the policy.
Below is a list of the more prominent advantages of GUL over Non-Guaranteed.
Guaranteed Universal Life Insurance vs Non-Guaranteed Universal Life
- The cost of your premium will not change, even as you get older or if your health changes.
- Lower up-front costs. Guaranteed universal life insurance is a fraction of the cost of non-guaranteed universal life.
- You won’t lose coverage due to changes in the market.
According to a 2017 report by bestliferates.org, when asked why more people don’t own life insurance, respondents answered in 3 common ways:
- 66% say it’s just too expensive for them.
- 66% say other financial priorities take higher precedence.
- 54% feel they have as much as they need right now.
The overwhelming majority want simple and easy coverage and prefer no health exams. These percentages show how many individuals are unaware of simplicity and relatively negligible prices for life insurance.
The best way to find answers is research and inquiry. Driscoll Insurance Services LLC has an experienced staff that is always willing to respond to any questions you might have, and get you started on your way to the best insurance policy at an affordable price. Get live, no-pressure term life insurance quotes on our site.
We look forward to hearing from you!
